A few tips
1 Give the italians Northern Italy, Sothern Italy, Sicily, Corsica, Sardinia, Tunisia, Libya, Morocco, Algeria. Maybe Germany could also divvy up Greece, Austria and Yugoslavia between the 2 axis.
2 Make Sicily worth 1, North Italy worth 5, Germany worth 12
Italy IPCs=12-16 Germany IPCs=32-36
3 Giv them what Germany normally gets in their countries except for a man on Sicily and 4 inf in North Italy
For their navy giv them 1BB, 1 dest., and 1tranny in tyrhenian sea, and MAYBE a sub in the adriatic
4 Use the japanese peices and control markers (or make your own markers) for the italians. you could buy a set of pieces on ebay or somewhere and paint them some other color such as blue or yellow or purple
5 I think Italy would go 2nd
Germany would have complete control of the distribution of any oil money conquered. Also there might be an “Italian patriotic war” which allows Italy to assume any German material on the land or in their port.